Georgia has prepared a complex 1332 waiver for their individual market. It has two parts.
The first part is a reinsurance waiver that varies the pay-out by county and degree of rurality. The objective is to bring down premiums for unsubsidized buyers. This part of the waiver would go into effect for January 1, 2021.
The other part of the waiver is an attempt to operationalize Ted Cruz’s amendment during Repeal and Replace.
Here is how Vox described the Cruz Amendment:
If an insurance company offers at least one plan in the state that is compliant with the (Obamacare) mandates, that company can also sell any additional plan that consumers desire.
What that does is it maintains the existing protections, but it gives consumers additional new options above and beyond of what they can purchase today….
That is true. But outside experts argued that the costs to the federal government could be unsustainable. As the Obamacare markets turned into high-risk pools, premiums would increase, driving the cost of the tax subsidies higher and higher.
“Keeping the ACA tax credits would, in theory, protect subsidized consumers,” Larry Levitt, senior vice president at the Kaiser Family Foundation, told me. “But the cost of those tax credits would quickly skyrocket, because healthy people would flock to non-complaint plans, which could cherry pick them with inexpensive premiums.”
Cruz acknowledged that his plan would depend on taxpayer subsidization of people with high medical costs. But, he argued, it was better for the federal government to pick up the tab than requiring health plans to charge sick people and healthy people the same premiums, increasing costs for the latter.
The second stage of the Georgia 1332 proposal would do a few things.
- Redirect all federal subsidy money to a Georgia state government account
- Maintain full Essential Health Benefit plans that set subsidies levels
- Allow insurers to offer subsidy eligible plans that don’t offer all 10 Essential Health Benefits
- Inject state funding to pay for extra subsidies for the new enrollees
The critical thing from a legal standpoint is the last point: the state is bringing in a lot of new money so that the seriously ill won’t be worse off if they purchase the benchmark silver plan which will be more than sufficient to meet guardrails.
The concept of operations is that insurers will offer a limited portfolio of full benefit plans and a bunch of much cheaper limited benefit plans.
ACA plans are required to offer 10 Essential Health Benefits (EHB). Milliman has a good graph that shows where the money is spent on EHBs:
For instance, Mayhew Insurance could offer a full benefit Silver plan and a limited benefit silver plan that covers everything except maternity, labor and delivery. The limited benefit plan will have about a 3-5% cost savings compared to the full benefit plan in a static analysis. However, the cheaper, limited benefit plan will actively repel any woman between the ages of 15 to 40 who thinks that there is the vaguest chance in hell that they will be pregnant. All of the pregnancy risk will be concentrated in the full benefit plan. The premium spread between the full benefit plan and the limited benefit plan will be greater than the total cost of the service as the risk will be concentrated in the full benefit plans.
I could easily see most insurers offer limited benefit plans that exclude maternity, pediatric dental/vision, and most of the preventive care benefits whose pay-out period is more than a year. More complex plans would have those exclusions plus limits on prescription drugs such as not paying for hepatitis-C drugs which is worth several dollars per member per month in premiums. Anyone who had any reasonable risk of needing the excluded services will go to the full benefit plans.
This is a way to convert the ACA individual market into a fairly well funded high cost/high risk pool. The low cost/low risk will self-underwrite to the subsidized limited benefit plans while the sick will overwhelmingly select the full benefit plans that have the same subsidy schedule for 100% to 400% FPL. The sick or high risk to be sick and expensive who earn over 400% FPL will truly be SOL under this scheme.
There are several major operational challenges. The first is how are the limited benefit and full benefit plans linked. Are they linked via risk adjustment where the limited benefit plans send significant chunks of premiums to the full benefit plans? That would lower the gross premiums for the sick and earning over 400% FPL while increasing state subsidy spending and costs for the healthy. Would reinsurance be assumed to be doing enough work here to keep the sick 400% FPLers close enough to the non-waiver status quo so that the limited benefit plans and the full benefit plans are linked to a common index rate like Catastrophic plans are currently linked to today? Are the limited benefit plans risk adjusted against themselves?
The legal vulnerability is that the state of Georgia is placing a cap on total 1332 spending of about a quarter billion dollars a year for both extra subsidies and reinsurance. Subsidy disbursement will be capped. If there is significant take-up of plans, people will be signing up late and not receiving assistance. Furthermore, if the morbidity profiles are worse than the state assumes, there will be obligations that are just being abandoned.
I’ve long thought that a variant of this idea makes a lot of sense. The one major change for a fix it and forget it policy would be to lift the subsidy cap from 400% FPL. California has done this to a limited degree to 600% FPL but opening up the subsidy schedule so that no one pays more than 10% of their income for a benchmark plan would get rid of the problem of a family of four paying $30,000 or $40,000 for coverage if they are old enough.